Chinese stocks finish down sharply, but off day’s lows

EseErheriene

Chinese equity markets finished down sharply but pared some losses from an early tumble Monday, after news that the world’s second-biggest economy had beaten expectations with 6.9% second-quarter growth.

They had earlier been hit by a plunge in small-cap stocks following a signal from a high-profile financial conference that Beijing is focused on tighter control of the economy. Policy makers at the National Financial Work Conference, which is held every five years and wrapped up on Saturday, mentioned “risk” 31 times and “regulation” 28 times, noted Jack Siu, an investment strategist for Asia-Pacific at Credit Suisse .

“Good news is now bad news,” said Siu. “The logic behind that is the [People’s Bank of China] and the government are looking to balance the risk prevention versus a moderate GDP growth.”

The Shanghai Composite
SHCOMP, +0.06%
, after being down as much as 2.6%, ended the day off 1.4%.

The Shenzhen Composite
399106, +0.01%
closed down 4.3%, finishing near its lows for the session. Hong Kong shares reversed early declines, leaving the Hang Seng Index
HSI, +0.05%
up 0.2% by the close of trading.

Adding to Monday’s early gloom was a series of profit warnings from small-cap Chinese companies. Several listed stocks U-turned on their financial-health projections.

“There’s a couple of small midcap companies that suddenly changed their guidance from profit to significant loss and I don’t think that was expected by the market,” said Caroline Yu Maurer, head of Greater China equities at BNP Paribas Investment Partners.

With the financial conference’s focus on regulatory scrutiny and the trend of investor flows from small-caps into large caps — whose profits have been fairly robust — it added up to “the perfect storm of negative events,” she added.

It overcame the People’s Bank of China’s biggest liquidity injection since June 6. It pumped a net 140 billion yuan ($20.68 billion) into the interbank market Monday.

Equity markets elsewhere in the region were broadly higher at the start of the week, following gains in U.S. indexes as interest-rate concerns eased. Softer-than-expected U.S. economic data on Friday could compel the Federal Reserve to hold off increases for longer than expected, analysts say. That helped drive the Dow Jones Industrial Average and the S&P 500 to record closes last week.

South Korea’s Kospi index
SEU, -0.26%
rose 0.4%, boosted by a 0.3% gain for index heavyweight Samsung
005930, -3.66%
. Singapore’s Straits Times Index
STI, -0.12%
was up 0.3%, while New Zealand’s NZX 50
NZ50GR, -0.04%
rose 0.7%. Japanese markets were closed for a public holiday.

The U.S. data “really induced the market to pare back rate hike expectations,” said Jingyi Pan, a market strategist at IG Group. The likelihood of a rate increase at each meeting before December is seen as less than 15%, according to CME Group data.

In Australia, the S&P/ASX 200
XJO, -0.22%
was flat down 0.2% the Australian dollar
AUDUSD, -0.0127%
pulled back after rallying against the U.S. dollar Friday to a near two-year high of US$0.7836.

More gains for the Australian dollar are likely this week, supported by encouraging Chinese economic activity and favorable Australian employment conditions, said the Commonwealth Bank of Australia .

Oil prices
US:CLQ7
were modestly higher in Asia following further gains on Friday in the U.S.; the shutdown of a Nigerian oil pipeline gave the market a lift. Futures rose some 5% last week, helped by Friday’s subdued growth in the U.S. oil-rig count.

Prices rose every day last week as investors of late have taken a glass-half-full view on the crude market, noted ANZ Research, amid some encouraging data points.

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